Down girl, down! Dowd sics herself on Wall Street

Oh dear. Maureen Dowd's gone demagogue, as she occasionally does when her rhetorical weaponry is set loose in a target-rich environment.

On Wednesday she unloosed a fearsome smart-bomb barrage against banking mogul excess. Today, she carpet-bombed Wall Street. Making money from money "must unhinge you." Those who awarded bonuses should be prosecuted, the money disgorged.

Reality check:

1) Done right, allocating capital efficiently is as important as making good widgets. You don't get good new widgets made without the capital. The problem was regulation gone awry (or AWOL), not the existence of people whose function is to make money from money. Like lawyers, they're unpopular but useful. You could argue that poor regulation made the field so lucrative that there's too many of them, but that's different.*

2) Dowd quotes Barney Frank without comment: "Paulson let the cat out of the bag...and it can't be gotten back." Frank's right. You can't claw back, let alone prosecute, unless someone broke a law. TARP was riddle with holes. The Obama Administration and Congress can fix the second half but not siphon back what's been pissed away.

3) Dowd ridicules Rudolph Giuliani for saying that cutting Wall Street bonuses would mean less spending in restaurants and stores. Restaurants, schmestraurants. The bonuses constitute a huge chunk of New York's decimated tax base.

There's a balance to be struck with regard to bonuses. They're more than half of a lot of financial people's yearly compensation, they're supposed to be based on the money you make, and some people did make money for their firms. Yes, TARP should radically limit them, particularly for those with 7-figure compensation and more. More to the point, as first Raghuram Rajan* and then Martin Wolf (hardly a pair of flaming radicals) wrote in the FT a year ago, the bulk of bonus money should be tied to long term performance -- locked up for up to 10 years and clawed back if today's bets wreak mass destruction tomorrow. But the whole system can't be obliterated at a stroke.

*As an index investor, I find them only indirectly useful, as there'd be no indexes without paid professional investors vainly trying to beat them.

**Former chief economist, IMF